First, a brief note is in order. In several conferences on the subject this author has argued it is improper to place unrelated commodities in an index. Too many commodities have either a near-zero or even a negative correlation to each other, and many commodities have entirely different responses to movements in key factors such as interest rates, the yield curve, and inflation expectations.

The drive toward indexation — a drive that has attracted more than $100 billion into long-only commodity index funds — represents the reduction ad absurdum of an intellectual revolution born more than three decades ago with the publication of Burton Malkiel’s classic A Random Walk Down Wall Street. Institutions accept indexation, and if you are in the business of raising funds, that is all you need to know.

However, there is no agreement as to how such an index should be constituted. If there were, we would not see such profound differences in commodity sector composition between the Goldman Sachs, Reuters/Jefferies CRB, and Dow Jones-AIG commodity indices. Bluntly, if we knew what we were doing, we would have converged on a common answer by now.